Are Mortgage Points a Good Idea

Mortgage rates continue to be high and many homeowners are trying to reduce their mortgage. But is paying points on your mortgage really beneficial?\r\n

\r\nAs homeowners need to get more inventive to afford their homes, some people are paying points on their mortgage to reduce their rate and monthly payment. Paying points on a mortgage is a process where a homebuyer pays money at closing to reduce their rate, in effect lowering their monthly payments. One point is considered 1% of the loan amount; i.e. if the loan amount is $200,000 then one point at closing would be $2,000.\r\n

The process of paying points, though, is not for everyone or every mortgage. If the product is an adjustable rate mortgage, and a homeowner chooses to pay interest only, there is little worth to paying points. Also, if a homebuyer is not going to stay in a home for more than five years, then the points paid will probably not pay for itself. As an example, if a homebuyer pays $4,000 in points at closing to reduce their monthly payment by $50, it would take more than six years to make the money back.\r\n